The Growing Influence of Coffee Restaurants in the United States

August 24, 2018/

The variety of coffee restaurants is growing and with good reason. Recently, the Dunkin’ Brands dropped “Donuts” from the chain’s name not because it wanted a much smoother name, but because it wanted focus on its main brand – the coffee.

This move led to people viewing the company differently, and encouraging customers to equate Dunkin’ with other coffee chains or competitors like Starbucks. The change may appear minor, however it’s totally on point: The 2017 yearly business report showed that hot and iced coffees generated the most revenues, and not the baked items it once sold.

The name modification also comes at a time when McDonald’s and JAB Holdings – the independently held conglomerate that owns Panera Bread, Peet’s Coffee & Tea, Caribou Coffee, and Stump town Coffee Roasters – are in the drive to bring in more coffee drinkers. The market is congested and consumers have a lot of choices relating to price, experience and quality.

So, what is the news?

Healthy margins for most food restaurants falls in between 25% to 35% of sales while for coffee, the margins are high with coffee recipes falling below 10% of the product price. “Starbucks coffee costs approximately 31 cents,” wrote AZ Central’s Zach Lazzari. “While the beverage itself goes for around $3.65 on the counter. That’s a 91.5% earnings margin for the coffee alone, excluding the cost of the coffee cup. In all, JAB, McDonald and Dunkin can still generate a substantial revenue, even though they don’t have the purchasing power of Starbucks.

Recent global data show that about 42% of consumers around the world visit a coffee restaurant every week, while it’s about 40% in North America.

In competing for consumers, Dunkin’ acts as a link between the real coffee shops like Starbucks and fast food restaurants dominated by the McDonald’s.

The real question is what does these businesses do to get an edge? Global Data research shows that quick preparation is something of good value. And speed of service is something Dunkin’ generally succeeds in, though not efficient as with McDonald’s, which built its whole business design around quick turnaround.

Starbucks has become a model when it comes to getting beverages out quick, helped by its push into fast payment systems. Dunkin’ and McDonald’s have actually expanded their usage of those innovations also, though neither has the mobile app user base of Starbucks, nor the expertise in this arena.

What’s most fascinating is that cost has been the competition driver. Cheap coffee at McDonald’s may lure consumers, but those purchases are most likely to be additive, rather than the cost at the other competitors.

Good Quality Coffee

Low costs, high margins, and the ability to re-position, it’s clear the competition is not slowing down anytime soon. Dunkin’ wants to been seen now as a coffee shop, in which the top position is currently occupied by Starbucks. McDonald’s on the other hand mostly want to incrementally grow the checks and balances of its existing customers, while drawing away cost –conscious rival customers. JAB Holdings simply desires a larger share of the carafe as it creates its own empire.

Brewing coffee needs a better business organization than when baking doughnuts, turning hamburgers, or selling basically any other food product. It is expected that the top brands, will focus on the drink even more in the years ahead, while other coffee restaurants will be in pursuit of fatter share of the margins.